Business Brief: Taking Clients When You Leave

A BNET UK reader writes:
I've been approached by a client to help him set up a rival company. My previous employers got wind of this and has assumed I am working there as an employee. This is not the case -- I have been offering my services as a consultant. While I've spoken with a few of my contacts -- who have become friends -- I have been very specific in correspondence to state that I do not wish to detract from their ties with my previous employer. I am not after my previous employer's database. I am not actively blanket bombing their clients [with pitches], I just want to get on with my new venture. Please can you offer any advice?
Rita Mehta (pictured) of law firm Thomas Eggar responds:

Without seeing a copy of your contract of employment, it's difficult to advise you as to where you stand. If your former employer's solicitors have sent you a letter referring to various clauses, then your contract may contain post-termination restrictions, which restrict you from competing with your former employer once you've left the company.

These restrictions generally prevent you from soliciting any of your former employer's clients, dealing with those clients, working for a competing business; working directly for a client, and/or poaching employees.

You may have not paid particular attention to the post-termination restrictions when you joined your former employer -- this is usual. But, providing they are reasonable, you are obliged to comply with the restrictions until they expire.

If you're restricted from working for a competing business for, say, six months, post-employment, you could be in breach of the restriction. Your former employer could apply for an injunction to prevent you from working for the rival company and could sue you for any loss suffered. Despite your approach to your contacts being commendable and fair, it would more than likely be in breach of the 'non-solicitation of clients' restriction.

If worded properly, you can, for example, be restricted from being engaged by a competing business as a consultant, partner or director.

Whether the restrictions are reasonable is a different matter altogether. For the restrictions to be valid they must protect a legitimate business interest and the protection sought must be no more than reasonable.

Broadly speaking, unless there are extenuating circumstances, restrictions for more than 12 months will be unenforceable.

So, if you have a valid non-competition restriction and non-solicitation (of clients) restriction, then you are in breach of these restrictions by (1) working as a consultant in the rival business and (2) approaching and seeking to do business with your former employer's clients.